Consumer advocates welcomed a federal effort aiming to prevent predatory mortgage lending at a town hall in Baltimore on Thursday, but expressed worries that new rules would not halt discrimination.
The Consumer Financial Protection Bureau unveiled a rule to be imposed a year from now that would require mortgage lenders to document and verify that a borrower will be able to repay a loan. The policy is intended to prohibit so-called "no-doc" and "low-doc" loans that were common during the housing boom.
"The events that caused the financial crisis might well have been avoided" had the policy been in effect in the early 2000s, Richard Cordray, the bureau's director, said at the event at the University of Maryland, Baltimore's Westminster Hall. Requiring responsible lending aligns the incentives of lenders and borrowers, he said. "Both of them win when borrowers can repay loans."
Consumer advocates agreed, but some questioned whether the rules will do enough to protect borrowers, particularly those with low incomes, from discrimination and to foster open access to affordable loans.
One issue is that the rule gives banks a "safe harbor" protection from civil actions over what are deemed prime qualified mortgage loans, ones in which banks have checked borrowers' ability to repay. Marceline White, executive director of the Maryland Consumer Rights Coalition, argued that the policy is more about protecting banks than consumers.
"We know banks should have always been involved in sound lending," White said. Given that they weren't in the past, there could be no guarantee they would in the future, she said.
Lisa Rice, vice president of the National Fair Housing Alliance, emphasized that even borrowers who receive such loans remain vulnerable to discrimination. Rice highlighted the example of a lawsuit over discriminatory lending against Wells Fargo that included about 1,000 Baltimore-area residents and resulted in a $175 million national settlement. The policy would prevent such sub-prime lending, but might not present some borrowers from being tricked into more expensive mortgages.
Banking and credit union industry representatives, meanwhile, expressed worry that the rule could limit their ability to make new home loans. Community banks and credit unions were not the cause of the housing bubble, more often keeping loans on their books and verifying borrowers' ability to repay, said Karen Thomas, a senior executive vice president with the Independent Community Bankers of America.
"A lot of what you're suggesting here, we've been doing anyway," said Rod Staatz, CEO of the Linthicum-based SECU credit union.
Mayor Stephanie Rawlings-Blake, who spoke along with Sen. Ben Cardin and Rep. Elijah Cummings, said she hoped the rule would help address her administration's goals to attract 10,000 new families to Baltimore over the next decade, promote homeownership in a partnership with Wells Fargo and spur redevelopment of vacant homes across the city.
"Without access to mortgages, all of these efforts will be for naught," Rawlings-Blake said.
Consumer bureau officials said the rule is intended to spur confidence in the housing market.
"How the market will evolve over time, we'll just have to see," Cordray said.
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